Germany's Will to Succeed

These Articles are Abridged versions of Papers to be Delivered Today and Tomorrow at the Conference on U.S. Competitiveness, Jointly Sponsored by the New York Stock Exchange, the U.S. Senate Subcommittee on International Trade and Harvard University.

Germany has far fewer natural resources than does the United Sates; it is restrained by membership in the Common Market; it bears scars from destruction in World War II, and from political division. Yet its growth rate is substantially above America's. This January, in its economic report to parliament, the German federal government made its predictions for economic performance this year: GNP was expected to increase 2.5 per cent, unemployment was expected to remain between 3 and 3.5 per cent, and consumer prices would rise by just 4.5 per cent. How does one explain such an enviable record?

Germany's will to succeed economically has been much affected by its recent history. The recurrent instability of recent decades has placed a special value on political order while the memory of democracy's demise after the Weimar Republic leads to a greater willingness to accept compromise. The corrosive effects of runaway inflation of 1922-23 gave rise to an acute awareness of the desirability of stable prices. The defeat and destruction wrought by World War II called attention to material needs and, with politics so tarnished by the Hitler experience, the primacy of economic ends seems self-evident.

The government's central role in reconstruction made the government's role in economic leadership seem natural. The experience of a stringent allied occupation led to a widespread desire for decontrol and deregulation. The 14 million German refugees who streamed to West Germany before the building of the Berlin wall in 1961 brought high motivation, special skills and training, and they brought relatively low demands on their initial conditions of work. The growth of the trading bloc in Western Europe opened a market for German goods and made obvious the importance of producing industrial goods which can be competitive on the world market.

These historical experiences may be unique but they led to the development of deliberate and well-designed initiatives or practices that are potentially transferable to other countries such as the United States.

The German federal government combines firm leadership from above and effective responsiveness to pressures and demands from below. It encourages consensus within and among political parties. Even opposition parties are entangled in government policies, and, there are dozens of commissions and agencies of all sorts that bring together representatives of state and governments to address specific national needs with a common, supra-party single voice. State and federal governments are active economic participants, and the government is responsive to the needs of the private sector. All kinds of subsidies are available, many of which are designed to promote industrial innovation. The Federal Ministry of Research and Technology, an agency not similarly represented in the U.S. cabinet, has a rapidly growing budget that has supported projects in fields like microelectronics, silicon chips, coal gasification, and may soon support steel modernization. Other subsidies have helped prevent the collapse of key companies or lagging sectors, but with more stringent government efforts to impose conditions and require the rationalization of the subsidized industry than would be true in America. It has been effective in responding to the rise in energy costs with an intensification of efforts to sell products abroad, a determination to control inflation by maintaining a healthy mark, and by a zealous search for alternate sources of supply. Within the government a high quality civil service plays a strategic role in facilitiating a high level of economic performance.

In the labor field, German government and business officials meet frequently with union leaders as part of "concerted action" to work together on common problems. Similarly, there are close working relations at the plant level. Organized labor has approached its role, first in postwar recovery, and now in responding to energy shortages, with a deep sense of partnership. Three members of Helmut Schmidt's cabinet are union leaders. Labor has far greater awareness than it does in America of the need to modernize and reorganize to remain competitive. Labor has reaped impressive gains, in the process, and time lost from strikes is the lowest of the modern industrial countries.

The private sector has a close fusion between banking and industry. Banks are not limited to local geographical areas and have accumulated substantial capital used in large part to finance industry, enabling them to acquire significant industrial holdings. German industrial companies are thus less dependent on equity markets for capital, and banks and companies work together to rationalize where desirable and salvage when necessary. In key sectors like chemical, ectro-technical, and automotive industries, the interplay between capital concentration in large giants with pressure for innovation and modern equipment to compete on world markets has proved highly effective. It has led to more investment in new technology which is rapidly accepted by labor.

The stronger sense of the need to remain competitive and a rational effort to rebuild society have thus led to a balanced mix of private and public initiatives and institutions that have permitted a fundamentaly weaker economy to become a prodigious world leader. It illustrates what can be achieved with will and proper organization.